|March 31, 2000
Secretary, Federal Trade Commission
Re: Comment Privacy of Consumer Financial Information Notice of Proposed Rulemaking, 16 CFR Part 313 Gramm-Leach-Bliley Act, Pub. L. 106-102
In reply to the request for comment to the Notice of Proposed Rulemaking and the Proposed Rule mandated by the Gramm-Leach-Bliley Act, Pub.L.106-102 (the "Act") as referenced above I write to address the my concerns as to how the Proposed Rules will impact my employer and the title insurance industry. I feel compelled to forward my comments even though the proposed rule should not apply to a title insurance company because it may certainly apply to title agents, escrow companies and attorneys that perform real estate settlements.
Section 505(a)(6) of the Act sets out that an insurer's activities regarding the privacy of consumers' non-public personal information would be regulated by the applicable State insurance authority of the State in which the insurer is domiciled. However, the examples used in section 313.4(c)(2)(ii) of the proposed rule to illustrate when a customer relationship is established, indicates that when a consumer purchases insurance that consumer becomes a customer. Becoming a customer is important under the proposed rule because it is required by those that come under the jurisdiction of the FTC that they give their customers a notice annually regarding their policy on the disclosure of non public personal financial information.
It is disconcerting that although the Act clearly sets out that insurance companies will be regulated by an agency other than the FTC, that your agency chose to use the purchase of insurance as an example in its proposed rule. Straying beyond the clear language of the Act serves only to add confusion to this subject and I would recommend that the example be changed as well as any reference to insurance products in the rule.
Beyond the ambiguity created by the inclusion of insurance activities within the proposed rule there are further concerns as they relate directly to a title insurer and title industry in general. To fully illustrate my concerns I will first give a brief introduction to my employer and the practices employed in the title insurance industry.
United General Title Insurance Company is a mid sized title insurance company licensed in thirty three jurisdictions and sells its policies of title insurance exclusively through a network of approximately 1000 independent title insurance agents. In 1999, sales of United General Title Insurance Company (UGTIC) title insurance policies through its agents generated $132,528,254.00 in insurance premiums. In 1999, after adding other revenues from operations and investments and deducting losses and operating expenses, UGTIC reported net income of $1,686,550.00 pursuant to the statutory accounting method as required by the insurance departments in the jurisdictions that UGTIC is licensed in.
The title agents that sell UGTIC policies range is size from large agencies that underwrite and sell tens of thousands of policies a year to small agents that underwrite and sell less than a hundred title insurance policies a year. UGTIC and its agents are fairly representative of the title insurance companies and title agents that operate in all fifty states and the District of Columbia.
As title insurers we deal exclusively with information that is gleaned from the public records. Traditionally, a title insurance policy protects against adverse matters that are not excluded or excepted to under the policy, that are in the public records and that may impact an owner's ownership interest or the lien of a lender's mortgage such as judgments, tax liens, mortgages, easements, covenants or restrictions.
Title insurance is different than other insurance products in that a title policy insures against the risk that something that happened in the past will impact the quality of the title to property. To protect against this risk title agents and title insurance companies work to discover defects with a title in the public records and work to remove them before title is transferred and the title policy is issued. Other types of insurance protect against the risk that something may happen in the future to harm the insured. A casualty insurer needs to be a good prognosticator of future events to be successful while a title insurer needs to be a good historian to be successful.
As we deal exclusively with public records we do not gather non public information regarding our insureds. Title insurance companies do not even collect the addresses of their policyholders. Title insurance policies typically do not include the mailing address of the property that is insured as the policy references the legal description of a parcel which is the method of describing property in the public land records.
The mailing address of the property may however be identified by cross referencing the real estate tax information available from the taxing authority in the jurisdiction where the land is situated. Real estate tax records are also public information and in many jurisdictions are available via the internet as are the public land records of many jurisdictions.
As our policies are underwritten and sold by independent title insurance agencies UGTIC typically has no contact with its insureds before a policy is sold and would y have contact with the insured after a policy is issued only if there is a claim on the policy. The independent title agent prepares the title insurance policy and mails it to the insured and then sends a copy to UGTIC with the remittance of the premium for that policy. This experience would be the same for any title insurer that sold its policy through an independent agent.
The full premium for the title policy is paid at the time of purchase and there are no annual premiums. An owner's title insurance policy is valid for as long as the insured owns the property insured and the insurance coverage continues after the sale of the property for any warranties of title given by the insured. Even though an owner's title insurance policy may potentially remain in force forever, it is rare to have contact with the insured and less than 5% of insured owners or their heirs will ever have contact with their title insurer after the purchase of the title policy. This is so because of the time and energy devoted to ensure that there are no title problems with a parcel before the parcel is conveyed and insured. The process of underwriting a title policy is designed to eliminate known risks and minimize unknown risks.
Title insurers do not capture any information that is not on their title insurance policy. Any information on the title insurance policy is a matter of public record since a title policy only deals with matters that are in the public record. UGTIC would not normally have the address of its insureds. Without that information it would be impossible to comply with a requirement that an annual notice be mailed out to its insureds.
For the purposes of this comment, I will assume that UGTIC has issued 4,000,000 policies of title insurance since the day it began operations in 1983. As indicated above, all owner's policies issued would still be in force so that the insureds under those policies would still qualify as customers under the proposed rule. Although a loan policy will terminate when the mortgage it insures is satisfied, UGTIC is never given notice of the satisfaction of any mortgages and would have no way of knowing if the loan policies are still in force or terminated. Loan policies are purchased by consumers as part of a mortgage loan transaction and under the proposed rules they would also become customers.
As UGTIC does not have the addresses of its customers it would have to secure these addresses. UGTIC would have to convert the legal description contained on its policies to an address by searching the various land and tax records. A process that would cost at a minimum of $75.00 per parcel to purchase such a search and 1 hour of personnel time to order the search, collect the data internally and so forth. Add to this cost the $.33 postage of mailing a notice and we see that the requirement that an annual notice be sent to our customers would cost UGTIC dearly. UGTIC would have to expend $300,000,000.00 for the land and tax searches, $100,000,000 in related employee expenses and $1,320,000.00 in postage to mail out the required annual notice for a total of $401,320,000.00.
This figure only estimates the cost to UGTIC which has less than 10% of the market share. The impact on UGTIC alone is potentially greater than the $87,000,000 estimated in the Notice of Rule making to extrapolate the numbers for the entire industry would show an impact of a much higher magnitude.
The costs of complying with the proposed rules is close to four times the total revenues of UGTIC generated in 1999. For these reasons alone coupled with the fact that as a title insurer UGTIC does not disclose non public information the rules must be written to provide an exception from the requirement of sending an annual disclosure to any entity that does not disclose or share non public information. Section 502 of the Act sets out and implies that the required notice only needs to be given by a financial institution that discloses non public personal information.